Investment fund looks to build real future for homeless

Real Letting Property Fund launched in an effort to supply affordable housing for the vulnerable plus a return for investors

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The Real Lettings Property Fund aims to raise £15m to £20m in the first tranche, to be used to buy up to 260 flats in London for letting to tenants vulnerable to homelessness. Photograph: Matt Cardy/Getty Images

Homelessness charity Broadway has launched a social impact investment fund which aims to provide housing for vulnerable people while generating an income for investors.

The Real Lettings Property Fund aims to raise £15m to £20m in the first tranche, which will be used to buy up to 100 one- and two-bedroom flats in London in the first year that can be let to the Broadway subsidiary Real Lettings. This specialist lettings agency rents property from private sector landlords to sublet to tenants who are moving on from a hostel or temporary accommodation, and who are vulnerable to homelessness.

The fund, which is structured as a regular commercial private rented sector fund, will generate an annual income of about 4% including charges, plus a share of the capital growth – expected to be about 3% a year – when property is sold on. Investors' money will be tied up for seven years, with an optional extra year.

"The fund will deliver real social impact by helping individuals build their resilience to prevent a return to homelessness, progress towards being work-ready and building confidence to eventually move into fully independent private tenancies – all social impacts that will be measured," said Daniel Brewer, founder of Resonance, the firm that will select, purchase and manage the properties on behalf of Real Lettings.

"At the same time it can deliver a commercially risk-adjusted return for investors on a significant portfolio of London property without the risk of voids. We're now lining up the first 30 units to complete in the first quarter of 2013."

The fund, which has already attracted a £10m anchor investment from the L&Q Foundation, has a minimum investment level of £500,000 for the initial tranche. But Brewer said the second tranche opening in early 2013 will have a lower minimum of £50,000.

Howard Sinclair, head of Real Lettings and Broadway, said the decision to launch the fund has been driven by recently introduced caps on housing benefit. Many of Real Lettings' tenants are reliant on benefits to pay their rent and are limited by these caps as to how much they can afford.

But the charity has to negotiate the rent it pays with commercially driven landlords, and Sinclair said spiralling rents have made it increasingly difficult to source sufficient properties from traditional private landlords.

He cited research by Hackney Citizen Advice Bureau which, after trying to help a growing stream of clients unable to find rental property within the local housing allowance limits, decided to mystery shop properties advertised in the area on Rightmove and Gumtree in June. Of the 1,585 homes for rent in Hackney, only 143 were affordable within housing benefit limits, and just 14 had landlords willing to rent to people on benefits. Sinclair said: "Only 10% of rental properties in Hackney were affordable for people on benefits, and of those only 10% were actually available to people on benefits – just 1% of the total number of properties available for rent – and our clients wouldn't be top of the list."